Vishay Intertechnology, Inc. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing is an annual report; fourth-quarter figures are included below for context.
Business context
Vishay manufactures discrete semiconductors and passive electronic components for industrial, automotive, computing, telecommunications, consumer, power-supply, military/aerospace, and medical markets. Its five reporting segments are MOSFETs, Diodes, Optoelectronic Components, Resistors & Inductors, and Capacitors.
Financial performance
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Net revenue | $2.300 billion | $2.493 billion |
| Gross profit / margin | $542.2 million / 23.6% | $611.3 million / 24.5% |
| Operating income / margin | $97.8 million / 4.3% | $189.1 million / 7.6% |
| Net earnings (loss) attributable to Vishay stockholders | $(108.5) million; $(0.73) per diluted share | $117.6 million; $0.77 per diluted share |
| Cash from operating activities | $245.3 million | $297.0 million |
| Capital expenditures | $147.1 million | $157.0 million |
| Cash and short-term investments | $1.095 billion | $1.107 billion |
| Debt carrying value | $436.7 million | $444.1 million |
| Working capital / current ratio | $1.430 billion / 4.1 | $1.462 billion / 4.3 |
Management-defined net cash and short-term investments, after debt, were $657.8 million at year-end. Approximately $442.7 million remained available under the $640 million revolving credit facility. The company reported positive free cash generation consistent with its history; based on operating cash flow less capital expenditures and including asset-sale proceeds, the 2015 amount was approximately $100 million.
Fourth quarter: Revenue was $555.9 million, down from $610.8 million in Q4 2014 and relatively flat sequentially. Gross margin was 22.6%. Operating income was $30.2 million. Net loss attributable to Vishay stockholders was $137.8 million, or $0.93 per diluted share, primarily reflecting the quarter’s discrete tax expense.
Changes versus the prior comparable period
- Full-year revenue fell 7.7%. Management attributed the decline principally to foreign currency effects (negative 5.4%), lower average selling prices (negative 3.0%), and slightly lower volume, partly offset by acquisitions.
- Gross margin decreased 0.9 percentage points, and operating income fell by about 48%. Management cited lower volume and selling prices, foreign exchange effects, and restructuring-related depreciation.
- Revenue declined in MOSFETs (9.3%), Diodes (7.8%), Resistors & Inductors (6.9%), and Capacitors (17.1%); Optoelectronic Components grew 8.2%, substantially reflecting the Capella acquisition.
- Cash from operations decreased by $51.7 million. Cash and short-term investments decreased slightly, while debt also declined.
Outlook, management commentary, risks, and unusual items
- Management described ongoing weakness in several end markets and concern about China, with Q4 book-to-bill of 0.97 and year-end backlog of $514.5 million. Backlog orders may be canceled or rescheduled and are not assured future revenue.
- Management expected approximately $150 million of capital expenditures in 2016. The Board raised the quarterly dividend to $0.0625 per share in February 2016; future dividends remain subject to Board approval.
- Cost programs announced in 2015 are expected to reduce annual costs by approximately $35 million at current volumes, with approximately $30 million of expected cash costs and implementation targeted before the end of 2017. Earlier programs target approximately $36 million of annual savings. These are targets, not guarantees.
- FY 2015 included $63.0 million of noncash impairment charges: $57.6 million related to Capella long-lived assets and $5.4 million to write off Capacitors goodwill. Capella had underperformed expectations; further impairment was identified as a risk.
- A $164.0 million tax charge was recorded in Q4 in connection with plans to repatriate $300 million of foreign earnings over several years. The full-year effective tax rate was 244.1%; the resulting GAAP loss contrasts with management’s non-GAAP adjusted net earnings of $109.0 million and adjusted diluted EPS of $0.72.
- The August 2015 Tianjin port explosion temporarily shut down a Vishay Diodes facility. The company recorded a $5.35 million loss after an estimated $4.60 million insurance receivable; potential business-interruption insurance recoveries had not been quantified.
- Liquidity and earnings remain exposed to cyclical demand, price competition, currency movements, raw-material availability and costs, and global operations. A U.S. pension-plan termination was in progress; additional funding was estimated at zero to $35 million, subject to regulatory requirements.
- Vishay and subsidiaries faced U.S. and Canadian purported antitrust class actions concerning capacitors and resistors, seeking unspecified damages. A Taiwan regulator announced a fine against an acquired subsidiary, then notified it of intent to grant full immunity and reduce the fine to zero; the seller had agreed to indemnify specified losses. Environmental remediation liabilities totaled approximately $16.9 million; management did not expect the matters to be materially adverse beyond recorded provisions.
Important facts for investors to verify
- Whether sales, backlog, book-to-bill, and margins stabilize after the 2015 decline, particularly in Capacitors and the weaker end markets.
- Whether targeted restructuring savings are achieved on schedule and without impairing production capacity or growth initiatives.
- Actual cash taxes and timing of the planned $300 million repatriation, and whether the large tax charge is properly distinguished from recurring operating performance.
- Capella’s operating trajectory, remaining asset values, and any further impairment exposure; also monitor insurance recovery related to Tianjin.
- Debt-facility covenant headroom, overseas cash accessibility, pension termination funding, and outcomes of antitrust and environmental matters.
- The filing reports effective disclosure controls and internal control over financial reporting, and the auditor issued unqualified opinions on the financial statements and internal controls.